Bearish Correction on the French CAC Index
15 June 2023
The first half of this week was significantly bullish for indices. However, the latter half is witnessing a bearish correction initiated by the Federal Reserve's decision. While a pause in interest rate hikes was expected, traders were caught off guard by the hawkish tone that followed, indicating future rate increases. This served as a catalyst for the ongoing correction, which is not unexpected given the recent steep rally, particularly in the United States.
Our focus today is on the CAC index from France, which touched a critical level yesterday. As seen in the chart, the price made contact with the resistance at 7350 points (orange), a level that served as resistance in February and March and then as key support in May. With May's breakout, it has reverted to a resistance level. Additionally, the price tested the long-term uptrend line (red), which was broken at the end of May.
The bounce off these two resistance points was favorable for sellers, particularly as it formed a shooting star pattern on the daily candlestick chart. This candle, characterized by a small body and a long upper wick, signifies resistance rejection and potentially hints at an upcoming sell signal.
As long as we remain below the orange resistance area, the sentiment is bearish and a decline in this French index could be anticipated. Conversely, if the price breaks above this resistance, it would signal a strong buying opportunity. However, the chances for the latter scenario currently seem less likely.